What's behind the jobless recovery?
US economists would like us to believe that the recession is over. However, unemployment has been reluctant to go along with the farce, and has remained at newly high natural levels of 9.7 percent despite reports of solid growth last quarter.
How could that be? Basic economics theory would argue that an employee is hired for a wage that is roughly equal to the value he or she adds to the company鈥檚 output. This would mean that workers should get hired now that the US is back to growth. In the face of the discrepancy, economists would describe that such a monster as an aggregate demand (AD) shock is responsible for the difference, but can that really explain it all?
According to Marginal Revolution:
鈥淚 would start with the fact that output has bounced back more robustly than employment has. AD theories per se do not explain that differential. One simple possibility is that better management and better measurement have allowed us to identify (and fire) hundreds of thousands of low-wage people who just weren鈥檛 producing much of value. That鈥檚 a real shock, even if it does not qualify as a sectoral shift in the traditional sense.
鈥淚t鈥檚 also the case that the rate of new job creation has been especially low. Yet the nominal wages on those jobs-to-be are not constrained by previous contracts or agreements. Tell stories as you may, but it鈥檚 hard for me to see that as exclusively an AD problem. I wonder what is the behavioral postulate for how long all these unemployed workers are all staring jobs in the face yet persistently stubborn about their appropriate nominal wage. I鈥檓 all for behavioral economics, but I don鈥檛 buy the necessary story here.
鈥淚 don鈥檛 want to oversell the minimum wage hike + unemployment compensation extension + means-testing hypothesis here, but surely it deserves a mention as one relevant factor. Those are real factors too. I also see that wages, and the job market, are more flexible today than in a long time, with so much service sector employment, so much flex-time and part-time, and such a low rate of unionization. In most AD theories that implies the job market bounces back relatively quickly yet that is not what we observe.鈥�
A mix of factors appear to be at work here. First, it seems managers 鈥� during good years 鈥� are far too reluctant to fire people, because, after these companies post good numbers, why should they lower employee morale by firing people?
This could mean that we鈥檙e now back on a path to growth, and that these people that are surely missing鈥� but, they probably didn鈥檛 produce much anyway. Only further growth will increase the need once again for new employees. But, it may also be the fact that people are simply reluctant to work for lower wages in the hopes that the Obama administration will indefinitely prolong unemployment benefits鈥�. because life, without working, is always more convenient.
You can visit Marginal Revolution to see if current unemployment is all about aggregate demand.
------------------------------
海角大神 has assembled a diverse group of the best economy-related bloggers out there. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the bloggers' own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. To add or view a comment on a guest blog, please go to the blogger's own site by clicking on the link above.
